Tutorial ABC Management

Q 1 and Q 2
Question 1
ABC Bhd uses activity based costing to set prices for its
three products. The following are the budgeted data
for each of the activity in the cost pool. Compute the
activity based overhead rates and a traditional
overhead rate based on MACHINE hours.
Activity Cost Pool Estimated Expected usage Cost allocation
Overhead of cost drivers rate
per activity
Designing 480,000 100,000 design 480,000/100,000 =
hours 4.8 hours
Cutting & polishing 3,200,000 160,000 machine 3,200,000/160,000
hours = 20 hours
Soldering 1,400,000 280,000 labor 1,400,000/280,000
hours = 5 hours
Packing & shipping 320,000 32,000 boxes 320,000/32000 =
10 boxes
Total RM5,400,000
Traditional overhead rate based on machine hour
Direct labor = 3,200,000/160,000
= 20
Rate = 5,400,000/3,200,000 X 100%
= 1.6875
Overhead rates = 20 X 1.6875
= RM33.75
Question 2
Eversafe Extinguisher Sdn Bhd manufactures two
models of fire extinguisher:
a Carbon Dioxie (CD) fire extinguisher
a Dry Powder foam (DPF) fire extinguisher.
Information regarding the two models are as follows:
Activity Estimated Expected Rate for activity
Overhead (RM) usage of cost
drivers per
activity
Engineering 75,000 300,000hr 75,000/300,000 = 0.25
hr
Machining 150,000 40,000 hr 150,000/40,000 = 3.75 hr
Testing 400,000 128,000hr 400,000/180,000 =
3.125hr
Packing & 800,000 200,000 lb 800,000/200,0000 = 4lb
shipping
Total RM1,425,000
 Allocated activity cost
CD DPF
0.25* 200,000/ 54,000 = 0.93 0.25* 10,0000/ 10,000 = 2.50

3.75* 30,000 / 54,000 = 2.083 3.75* 10,000/ 10,000 = 3.75

3.125* 108,000 / 54,000 = 6.25 3.125* 20,000/ 10,000 = 6.25

4* 125,000 / 54,000 = 9.259 4* 75,000/ 10,000 = 30

Total 18.522 42.50

Traditional method using direct labor hours.
CD DPF
Direct labor material= 17.50 26.75
Direct labor cost =6.25 6.25

Absorption rate = Estimated overhead X 100%

Direct labor cost
= 1,425,000 100%
400,000
= 3.5625
CD = 3.2625 * 6.25 = 22.2656
DPF= 3.2625 * 6.25 = 22.2656 +
44.5312